Commodity outlook

THE U.S. PERSPECTIVE ON INTERNATIONAL MARKETS

REPRESENTING CORN, SOYBEANS, and wheat, analysts from three American non-profit market development organizations offer their thoughts on what the coming year may offer.

KURT SHULTZ
U.S. GRAINS COUNCIL DIRECTOR OF GLOBAL STRATEGIES

“Production and price are going to set the theme in international markets. Low prices create a dramatic opportunity for end users of corn to rebuild demand. Livestock producers around the world who were paying very high prices can now use some of the money they are saving to expand their production capabilities. In the longer term, this will stimulate exports as demand increases.

In the short term, low prices are the most immediate concern for U.S. farmers and it will take some time for new demand to catch up.  But low corn prices are an opportunity for the livestock industry, and it will be interesting to watch how they react.
   
China and its feed grain imports will be another big dynamic — how it swings will affect the market.

Ethanol is a very interesting export opportunity. U.S. ethanol is very competitive — it presents an opportunity for corn growers to move more corn overseas.

In the case of livestock, if cheap U.S. corn makes U.S. meat exports more competitive in the international market, we could eventually see an increase in meat exports. The large U.S. corn crop will challenge the U.S. export system to keep up, especially in the beginning of harvest. However, hopefully the abundant corn crop will also lead to a surge in exports of other products such as ethanol, distillers’ grain, and finished meat products.
          
Meanwhile, low corn prices could produce some drawback in corn acres, not only in the U.S. but among our competitors.”

JOHN BAIZE
JOHN C. BAIZE & ASSOCIATES, FOR THE U.S. SOY EXPORT COUNCIL

“We’ve shifted from a climate characterized by shortages to one of large soybean surpluses. It’s likely by next August we will end up with a stocks-to-use ratio over 30% — the highest in history.

We’ve seen harvested area go up in all the major supplier countries – Argentina, Brazil, Paraguay, Uruguay, the U.S., and Canada, and we’ve had great yields. We’re seeing strong demand, but it’s not keeping up. We’re probably going to grow the world supply by over 25 million metric tons (mmt), but USDA is saying consumption will only go up by 15 mmt. That’s a recipe for low prices —  Midwestern farmers selling soybeans out of the field at close to $8 a bushel.

Corn has not been as profitable, and if you look at 2015 futures prices, it looks like soybeans will still be the more profitable crop. We may well see more soybean planting next year in the U.S. at the expense of corn.

It’s going to be tough for farmers. Unless weather comes along to address the over-supply, I think we’re going to go through a period of soybeans becoming unprofitable.

China is driving the world market. Two-thirds of all soybeans exported by supplier countries go to China and USDA is saying exports will grow almost five mmt this year, practically all of that to China.

As domestic demand goes up, India is shifting from being a net soy meal exporter. I think they will be a net importer in the next five to six years and the meal they’ve been exporting to places like Japan and Korea will have to be replaced by another source. That’s going to increase the opportunity for exports.”

CASEY CHUMRAU
U.S. WHEAT MARKET ANALYST

“In principle, high supply leads to low prices, but the global wheat market is much more complicated and supplies of high quality milling wheat may be less accessible than it appears. USDA’s September 30 grain stocks report showed total U.S. wheat stocks up two percent. What it did not show is that the U.S. stocks estimate of 2.16 mmt was 11% lower than the five-year average for the quarter.

What really stands out is the location of those stocks — 30% more wheat stored on-farm than a year earlier. U.S. farmers are willing and able to hold stock until they get a better price, and that holds down U.S. stocks available for export.

Russia had its second consecutive bumper crop but seems to be exiting the export market earlier than in past years. China and India are the world’s top wheat producers but also the top wheat consumers, using almost everything they grow.

The condition and quality of wheat stocks actually available to world markets is a concern. Every major producing country in the northern hemisphere had quality issues in 2014. For example, just 64% of France’s crop was of milling quality and France had difficulty meeting minimum quality specifications for Algeria, its top customer.

The world may be full of wheat this year, but the world’s wheat customers must also consider the availability and condition of that wheat. Customers looking for specific qualities and proteins will have to dig deeper, sooner rather than later, before those supplies dwindle from the export market.” •